Rep. Mel Watt, who will oversee Fannie Mae and Freddie Mac, is likely to shake up the industry.

Rep. Mel Watt, set to be sworn in Monday as regulator for Fannie Mae and Freddie Mac, is signaling a change in direction that analysts say could presage the largest shift in housing policy since the mortgage-finance giants were effectively nationalized five years ago.

The departing head of the Federal Housing Finance Agency, Edward DeMarco, has tried to accelerate steps designed to shrink the companies' footprints during the last...